Paying Agent
Categories: Banking
Put simply, a “paying agent” is someone who makes payments to people on behalf of someone else. The details get a little complex, but at its core, that’s what we’re talking about here.
One common example of a paying agent is the bank that issues payments to a company’s bondholders on behalf of that company. For example, let’s say that Fangstons, Inc., purveyor of fine dental products, recently announced its plans to create and sell three new flavors of toothpaste: Organic Cherry Mint, Bacon and Orange, and our personal favorite, Ground Beef Enchilada. To fund this grand venture, they’ve issued $12 million in bonds. They have every confidence that these new products will be their best-selling ones yet, even surpassing last year’s surprise customer favorite: Smoked Gouda mouthwash.
But let’s be real here: Fangstons is a dental product company, not a financial institution. They’re not in the business of bonds. That’s why hiring a paying agent to deal with the whole bond thing, like a bank, is probably not that bad of an idea. Fangstons pays the bank a fee, and in return, the bank handles all of the coupon payments due to the bondholders.
Sounds like a win-win to us. Maybe even a bigger winner than mouthwash that tastes like lightly burnt cheese.
